Thursday, May 22, 2008

American Economic Association Follows Basic Investment Advice

Recently a New York Times article came out with a simple investment strategy. “Index (mostly). Save a ton. Reallocate infrequently.”

What does that mean? Put your money in index mutual funds. Some well known indicies are the S&P 500 and the Dow Jones, these indices track the market by picking a group of major companies. Since the indices are pre-chosen management fees are small and few professional managers consistently do better than the major index funds.

Save a ton is obvious, while allocation is which indicies to put your money. You can do US (small or large companies), International, or bonds. So what is a good allocation? Depends on who you are.

A good indicator might be how experts invest their money. So how about the American Economic Association? They recently reallocated their portfolio to a mix of 15% bonds, 55% US Stocks, and 30% international of which 5% is emerging markets (article here). All held with Vanguard, and I think most are index funds.

That is not too far off my allocation of retirement funds, without the bonds.

Thanks to my grandfather for passing on the NY-Times article.

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